MP George Galloway should not have won £150,000 from The Daily Telegraph because its story had privilege against libel, the Court of Appeal has heard.
Mr Galloway has always denied receiving money
James Price QC, for the newspaper, said it was in the public interest to publish documents found in Baghdad.
It was entitled to comment on these and interpret them as appearing to show Mr Galloway received money from Saddam Hussein's regime, he added.
Mr Galloway has always denied ever seeking or receiving money.
The MP, then representing Glasgow Kelvin, was awarded £150,000 last December.
But Mr Price said the story, published in April 2003, had been covered by the legal defence of privilege because it was "of truly global significance".
He said it was in the public interest, whether the documents - found at the Iraqi foreign minister following the fall of Baghdad - were true or false.
The newspaper had apparently found evidence that a British MP, the leader of a worldwide campaign against sanctions in Saddam Hussein's Iraq and high-profile member of the anti-war lobby, had been accepting substantial amounts of money from the "Oil for Food" programme, Mr Price added.
He said the newspaper had never sought to prove Mr Galloway had taken money from the programme, designed to help sick and hungry Iraqis while the West imposed trade sanctions.
"What is true and established is that the documents which we found are genuine Iraqi Government documents found in closed files on government property. That makes them a matter of public interest."
Mr Price said High Court judge Mr Justice Eady had rejected the defence of privilege at the trial because the newspaper had also published its own conclusions.
He went on: "If it was entitled to publish documents under the protection of privilege, it was entitled to comment on them."
Privilege should not be lost because the newspaper takes a different view of the correct interpretation of the documents to that of the trial judge, he said.
A newspaper could comment on a privileged story even if its views were provocative, offensive, biased or wrong.
Orders by Mr Justice Eady that the Telegraph should pay legal costs estimated at £1.2m, as well as the damages, have been suspended until after the result of the appeal.
Mr Galloway was expelled from the Labour Party for comments about the Iraq war and went on to win Bethnal Green as leader of the anti-war Respect party, ousting Labour's Oona King.